Real Estate

1
Real Estate

• Course Review

2
Class 1 Introduction

• The oldest investment
• The oldest contracts.
• Basic principles
• Rights to occupy, transfer, enjoy.
• No land rights, no economy
• Role as security
• Assignats and land banks to MBS

3
Class 1 Real Estate as Investment

• Development process
• Valuation fundaments
• Comparables
• Present value
• Replacement
• The Century Tower
• Pro-forma example
• Lease structure
• IRR/PV/Cap Rate

4
Class 2 Angus Cartwright

• Raises more questions than answers
• Copy pro-forma, but why?
• Details embedded in the market value or not?
• How to assess risk?
• Is this a real estate case?
• Does RE make sense for these investors?

5
Class 2 Dynamics

• Valuation and changing economic factors.
• Rents and vacancies in a strategic setting
• High vacancies good or bad thing?
• Cap rates move with interest rates
• Real estate discount rates related to alternative
  uses of capital.
• Simulation may be the answer.

6
Class 3 Doug Shorenstein

• What a successful strategy looks like
• Active, opportunistic
• Few close partners with ready cash.
• Long-term experience with market cycles.
• Philosophy about liquid markets
• Lexington Avenue Case
• How to think through a pro-forma.
• First real look at serious market information.

7
Class 3 Debt

• Real Estate as security
• Commercial mortgage backed securities
• How debt structure affects motivation
• Concept of default

8
Class 4 New England Center

• A valuation case that hinges on ownership
  transfer
• A study in default
• How people and litigation matter
• A peek at real estate titans.

9
Class 4 Real Options and Agency

• Develop as an option
• Empirical evidence on development options being
  valued.
• Volatility increase development optionality
  value.
• Leasing as option
• Low rents/high rents.

10
Class 4 Agency

• Agency and information asymmetry
• Agent motivation
• Fee contract as tool for resolving conflict.
• Examples
• Local developer national investor
• Owner occupied housing.

11
Class 5 Costa Mesa

• Details of contracting between principle and
  agent.
• Value brought by local developer.
• Financial strength of national investor.
• Equity buyout as a resolution.
• Some information about the development process.

12
Class 5 Retail Location Analysis

• Fundamental character of real estate.
• Agglomeration theory why cities?
• William Reilly
• Distance, market size and store size matter.
• Functional form to be estimated.

13
Class 6 Dubailand

• Modern application of location analysis
• How geography interacts with scale
• Feasibility of a country
• Megaproject

14
Class 6 International Diversification

• Real Estate as institutional asset
• Global vs. local factors
• Mystery of co-movement
• GDP a major driver of correlations

15
Class 7 Andrea Pizzicone
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Class 8 Ellen Shuman, CIO, Carnegie Foundation

• Mission-up view of an investment organization
• Role of Real Estate in the Portfolio
• Lumpiness
• Opportunistic vs. passive.

17
Class 8 Evaluation Corporation

• NCREIF vs. NaREIT
• Mystery of low correlation
• Valuation matters
• Benchmarking performance with indices
• Discussion of institutional evolution of real
  estate markets over past 20 years.

18
Class 9 Lucky U.

• A complete portfolio case for a university
  considering real estate.
• Challenge of addressing inputs to the
  optimization process
• Volatility?
• Real Estate as inflation hedge.

19
Class 9 Behavioral Approach

• Survey evidence of how investors look at Real
  estate.
• Herding into it
• Uncertainty matters
• Institutional differences
• Reasons for investing
• Diversification
• Inflation hedge
• Reasons for not investing
• Liquidity
• Investment risk
• Poor data

20
Class 10 Taubman Takeover

• UPREIT structure
• Conflicts of interest(?)
• Role of major shareholder.
• Examining share prices for market reactions
• Corporate Governance
• Internal mechanisms
• External discipline
• Risk premium for bad governance?
• Taubman takeover as external discipline

21
Class 11 Tom Zacharias

• Illustrious SOM Alum in Real Estate
• Major real estate owner and manager
• WP Carey as financial innovator
• Sale leaseback structure
• A different perspective on the future of Real
  Estate.

22
Class 11 Mortgage Markets

• Mortgage
• Refinancing option
• Institutional framework
• Role of agencies
• Systemic risk of agencies

23
Class 12 Red Brick Partners

• Is housing a viable equity investment?
• Returns high enough?
• Regional diversification.
• Red Brick structure and personnel.
• Research, management, transactions.
• The new frontier in real estate?

24
Class 12 Housing markets continued

• Refinancing and the sensitivity to interest rates
• Fannie and Freddie as financial institutions
• Role of OFHEO
• OFHEO and equity indices
• Repeat-sale
• Hedonic estimation

25
Class 13 Eric Hangen

• Creator of Home Equity Insurance
• Syracuse Experience